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Friday, September 17, 2010

U.C. Proxy Voting on Investment Portfolio Said to Skirt Social Issue Review Guidelines

U.C. Proxy Voting Skirts Review Guidelines, Documents Show (excerpts)

Tess Townsend, NY Times/Bay Area Citizen, 9/16/10

The University of California, which prides itself as a leader on social and environmental issues, voted against hundreds of shareholder resolutions designed to promote human rights, environmental sustainability and efforts to fight discrimination, a review of U.C.’s voting record shows.

The resolutions involved corporations like Exxon Mobil, PepsiCo and Occidental Petroleum and pertained to about one-third of the university’s $65 billion investment portfolio, a portfolio that includes some 5,000 companies. Like many other universities, U.C. employs a private firm to manage its investments and vote on its behalf.

Under U.C.’s proxy voting guidelines, the university is required to review case by case all shareholder resolutions that are “controversial or relate to social issues.” But thousands of documents obtained from sources and under a California Public Records Act request by The Bay Citizen show that, over the past two years, Institutional Shareholder Services, a proxy voting service, voted on behalf of U.C. against hundreds of resolutions that appeared to fall within the university’s guidelines.

The documents show that the university voted against nonbinding resolutions that would have encouraged companies to set goals for lower emissions of greenhouse gases, carry out policies prohibiting discrimination against individuals based on sex or sexual identity, report political contributions, form human rights committees and improve treatment of animals. The university voted against 188 such resolutions in 2008, and at least 50 in 2009.

Melvin Stanton, the university’s associate chief investment officer, said in an e-mail that U.C. focused primarily on growing its investments. Mr. Stanton added that no evidence existed of “a significant correlation between proposals brought by shareholders/activist groups and additional shareholder value,” on social or environmental issues.

“Our focus is doing what is best to improve the financial wherewithal of a particular company,” Mr. Stanton said in a telephone interview. “We’re not really focusing on social issues.”…

Mr. Stanton said U.C. was adhering to its policy. According to the university, the proxy service uses a coding system to categorize each resolution, including those involving environmental, social and governance issues, to ensure that votes comply with U.C. policy. The university’s proxy voting system is under review, he said.

Until 2001, regents voted on each shareholder resolution individually. But as the university’s portfolio grew, from fewer than 200 companies to more than 5,000, the university shifted management of some of those investments from its internal staff to “external equity managers,” a U.C. spokesman said…

U.C. provides voting guidelines to the State Street Corporation, which is paid $1.3 million a year to manage $19.8 billion of the university’s $65 billion retirement, pension and endowment accounts. State Street also receives $2.1 million for holding the university’s assets. Institutional Shareholder Services, which receives about $131,000 annually, is responsible for carrying out the guidelines and voting.

Institutional Shareholder Services offers customized voting packages in which investors can vote on resolutions based on core values, like the United Nations principles for responsible investments, or religious-based investment practices. Neither the company nor the university could disclose the terms of their proxy-voting package.

Thomas Joo, a law professor at the University of California, Davis, who specializes in corporate governance, said that with pension funds failing across the country, U.C. must consider the “ultimate beneficiaries” of its investments and focus on the financial implications… “What do the beneficiaries want?” Mr. Joo asked. “Do they want to be socially responsible or do they want to have retirement money when they retire?”…